I have also been looking into the business model for blogging networks, and have had several conversations with VCs about this.

My instinct is that Michael Arrington has the right model, where he has a good cash business without outside investors. If he can get his burn rate down and make it somewhat more profitable, it may be eventually be a better outcome than taking a lot of venture money. Even with small amounts of venture money, the cap structure becomes quite problematic otherwise.

With one exception: technology. If the network introduces some scalable technology-leveraged offerings, and monetize the traffic in ways beyond advertising, it may be interesting.

Rafat Ali at paidcontent.org is trying to sell research reports at $100 per pop, trying to emulate the New York Times TimeSelect model. I don’t know how much he’s selling, but these are interesting experiments to watch.

PopSugar, it seems, has two different sets of opportunities, and I’ve read / heard both as their intended direction : (a) targeting women, and broadening their women-focused offering to create a next-gen iVillage. (b) going after different segments like gadget geeks, etc. They could, presumably, do both, and as you suggest above, there probably are acquisitions in the order.

So, if PopSugar becomes the consolidator for the category, and wraps up a number of different blog networks under its umbrella, then with Mike Moritz’s backing, this could have a reasonable exit.

At any rate, whoever does the consolidation, I do agree, that a roll-up is the best way to scale for this category.

The ones who will be stuck in between – neither consolidator, nor consolidated, but with venture money (= needs an exit to get VCs off their back) – will experience that horrendous twilight zone of venture capital, if you know what I mean.

Sramana